Education

UK wants to fast-track state rules for picking investment managers

William Thro is general counsel for the University of Kentucky.
William Thro is general counsel for the University of Kentucky. Photo provided by UK.

The University of Kentucky wants to stop using state procurement rules in hiring investment managers for its $1.2 billion endowment, a move that officials say will allow it to be more nimble and make more money.

UK endowment staff recommended the move, which was upheld in a legal opinion by UK General Counsel William Thro and William Harris, UK’s purchasing director. The UK Board of Trustees’ investment committee will vote on the measure at its December meeting.

Thro wrote that UK could bypass state rules that require issuing requests for proposals because UK would still negotiate to get the best deals from managers. State procurement rules allow public entities to forgo the rules when they are “not feasible,” Thro wrote.

“This approach .... assures transparency,” Thro told investment committee members at a meeting Thursday. “We were comfortable advising Bill Harris this was something that could be done within the law.”

Thro’s opinion and the change itself do not need any state legislative approval, Harris said.

UK Treasurer Susan Krauss said the investment staff recommended the change because the formal RFP process takes as long as six months, which can be too long to hire a manager to work on a certain strategy in the markets. In addition, she said top money managers don’t generally respond to RFPs because “they don’t have to.”

Under the proposed process, Krauss’ office would work with UK’s investment consultant, the Fund Evaluation Group, to find managers and conduct their own due diligence before hiring them.

The change “will ensure we maintain transparency but give us access to better managers and select managers in a better fashion,” Krauss said. “We will continue to follow the tenets of the procurement code but it will not be a formal process.”

The less formal process is considered best practice in investment circles, Krauss said, and is followed by the Kentucky Retirement Systems, the state’s floundering public pension system.

Earlier this year, the Kentucky Center for Investigative Reporting found that UK ranked sixth among Kentucky’s public universities for the rate of return on its endowment.

The year-to-date return is 3.1 percent. It has averaged about 5.8 percent over the previous five years.

UK officials are still assessing how much the school pays managers in fees. KyCIR found that in fiscal year 2015, UK paid 27 different managers about $8.5 million in fees.

Linda Blackford: 859-231-1359, @lbblackford

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